The U.S. is trying to cut China out of its EV supply chain, but the Eastern superpower is not keen on reducing its role in global EV production. Chinese companies are investing in South Korea’s EV industry, and partnering with Korean firms to maintain China’s outsized role in the production of batteries that will end up in American EVs that qualify for federal EV tax credits, as Bloomberg reports.
China wants to leverage South Korea’s free-trade agreement with the U.S. to circumvent the rules of the Inflation Reduction Act, which state that batteries used in the assembly of EVs must come from America’s free-trade partners for a vehicle to qualify for up to $7,500 in tax credits. While the IRA encourages domestic EV sourcing and production in the U.S., it also acknowledges long-standing trade relations with countries like South Korea, which are bolstering their own EV production.
China is now investing billions of dollars into South Korea’s auto industry, and funneling large sums into EV battery production. No less than five new battery factories will be funded in part by Chinese money and more are on the way, per Bloomberg:
Over the past four months, Chinese companies and their Korean partners have announced some 5.1 trillion won ($4 billion) of investments in five new battery factories in Korea. And at least one local government is in talks for more projects, officials from the Saemangeum Development and Investment Agency say.
In effect, the Chinese plan to prop up South Korea’s battery production and thereby play a role in the supply of American EVs. It’s an indirect way to remain an integral part of auto production in the West, even as the U.S. imposes stricter rules to keep China out of its EV supply chain.
But these Chinese and Korean partnerships shouldn’t be surprising given the close ties between Chinese suppliers and Korea’s biggest battery makers. Firms like LG, Samsung and SK On have relied on Chinese raw materials for decades, and these latest investments are simply fostering those extant relationships. The problem is that, unlike with South Korea, there’s less of a symbiosis between the U.S. and China right now; despite a continued reliance on one another, the two superpowers are not on good terms.
It’s possible the U.S. could end up revising its rules, and that it may decide to exclude EVs using certain Korean-made battery packs — those that are mostly built using Chinese raw materials or those produced using Chinese money, but that’s tricky. Bloomberg cites Korean analysts who say that’s just not feasible:
“The US can’t exclude Chinese firms from EV supply chains,” said James Oh, vice president at Seoul-based battery research firm SNE Research. “If they ban Korea-China partnerships, the US will never be able to make EVs.”
Korean researchers are likely right to say that banning Chinese partnerships might put the U.S. in a difficult position. Especially considering that China is already making inroads throughout South America and Mexico, where it plans to play a role in the South and North American EV industries via new factories, investments, and automaker partnerships.